July 3, 2022

Volume XII, Number 184

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Cannabis Goes to the Metaverse, Creating New Opportunities and Business Questions

Following in the footsteps of Californians, Coloradoans, Arizonans, and Bay Staters, denizens of the Metaverse can now step inside a cannabis dispensary and purchase cannabis products. Two cannabis brands have staked claims to their own Metaverse storefronts, where they will sell products to real life addresses in all 50 US States. Higher Life CBD and Kandy Girl each have acquired a property in the Metaverse (in Cryptovoxels and Decentraland, respectively), where they are accepting customers interested in purchasing both digital items (like NFTs and Metaverse wearables) and real-life cannabis products.

Moving into the Metaverse, both replicates mundane concerns faced by nearly all businesses (real estate, employee management, and customer relations) and opens up new regulatory gray areas, such as inconsistent state and federal law governing advertising, marketing, sale, and possession of marijuana products. Both Higher Life CBD and Kandy Girl have styled their Metaverse storefronts as virtual dispensaries. While Kandy Girl attempts to avoid state laws outlawing sales of cannabis by selling THC gummies (consisting of no more than .3% delta-9 THC extracted from hemp), which are legal under federal law, some cannabis products presently can only be shipped in a limited number of states. For now, purchasers seeking cannabis products in states where cannabis sales are not legal are limited to CBD purchases only. However, as the tenor of state and federal law slowly shifts towards legalization, more states may become markets for cannabis products – and the brands already known to purchasers, digital or otherwise, will have an advantage once those sales are allowed.

Cannabis companies operating in the Metaverse can also use their digital storefronts to change their customer service operations. For instance, expert budtenders can provide advice to potential clients anywhere in the world and display other products and strains that may suit the customers’ wants and price ranges – all from the comfort of the clients’ homes. Brands can also gather significant amounts of data on their customers and leverage that data into new offerings targeted to customer wants.

The Metaverse may ultimately serve as the great equalizer – granting smaller local brands the ability to compete with far more established brands, all through the power of the internet. Higher Life CBD is an Indiana company, and Kandy Girl is owned by a Florida entrepreneur, but in the Metaverse, they can be anyone’s local dispensary.

For brands not yet in the Metaverse, now is a good time to think about expanding beyond your local footprint and claiming your spot in the digital marketplace. As large companies develop the Metaverse, they will seek to bring as many new eyeballs and new dollars to spend as exist on the internet. Being set up with a distinct Metaverse presence and open digital doors will enable those new clients to start making their cannabis product purchases online as soon as they are ready.

Nevertheless, before entering the Metaverse, cannabis companies should consider the individual advertising and marketing regulations of the particular states they operate in. In addition, they should consider carefully the review of the specific terms of service or use of the particular Metaverse they plan to operate in. For instance, Sandbox’s Terms of Use bans users from “[p]romoting any illegal activity or advocate, promote or assist any unlawful act,” and Decentraland’s Terms of Use state:

"In the event that fraud, illegality … is connected with your account, a decentralized autonomous organization (DAO) may suspend or block your account."

Overall, while the Metaverse is a ripe target for cannabis companies to operate, market, and conduct customer service in, they should carefully consider the regulatory and operational environment of the particular Metaverse they plan to operate in before potentially launching a virtual dispensary

© 2022 ArentFox Schiff LLPNational Law Review, Volume XII, Number 111
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About this Author

Aram Ordubegian Attorney  Chair of ArentFoxSchiff Cannabis Industry Practice Group
Partner

Aram has broad-based reorganization and bankruptcy litigation and appellate experience in a wide area of insolvency matters, from various perspectives, including: representation of businesses and high net-worth individuals facing financial distress, purchasers of assets, individual and corporate creditors, creditors' committees, trustees, and parties to out of court work-out transactions with debtors, before, during and after bankruptcies.

Aram has advised businesses in connection with debt restructuring, securitization, trust formation,...

213-629-7410
Justin A. Goldberg Corporate and Securities Lawyer Los Angeles ArentFoxSchiff
ASSOCIATE

Justin represents clients in various industries, including food and beverage, sports, insurance and reinsurance, cannabis, and automotive, in a wide variety of commercial transactions, including corporate structuring, finance, joint ventures, mergers and acquisitions, corporate compliance, real estate, sponsorships, and general corporate law. Justin’s clients include international corporations, food and beverage companies, auto industry companies, emerging growth companies, cannabis companies, select startups, collegiate sports entities, and prominent individuals. Justin...

213-443-7662
Jake Gilbert New York  Litigation Lawyer ArentFoxSchiff
ASSOCIATE

Jake is deeply experienced across a multitude of legal fields including copyright and trademark litigation, general commercial litigation, insurance disputes, data privacy and cybersecurity counseling, and entertainment. He has advocated in front of state and federal courts, negotiated resolutions and other agreements between opposing parties, and used his legal knowledge to draft internal guidance, policies, and terms of service for clients across numerous industries.

He has extensive experience representing international and domestic insurers...

212-492-3326
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